This is my story about cashing out my 401k! I once had a 401k that I needed to take care of ie. Rollover, except I didn’t know what that meant. Here’s the mistake I made.
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I CASHED OUT MY 401K!
It’s a phrase that many of us have heard, but what does it actually mean? When someone says they cashed out their 401k, it typically means that they have withdrawn all or a portion of the funds from their employer-sponsored retirement account before reaching retirement age (usually 59.5 years old).
There are a few reasons why someone might choose to cash out their 401k. One common reason is to pay off debt or unexpected expenses such as medical bills, home repairs, or car payments. Another reason could be to invest in a new business or entrepreneurial venture.
However, while it may seem like a quick fix to get cash in hand, cashing out a 401k before retirement age can have serious financial consequences.
First and foremost, cashing out a 401k will incur taxes and penalties. The funds in a 401k account are typically tax-deferred, meaning that the contributions and earnings on those contributions are not taxed until they are withdrawn. If someone cashes out their 401k before retirement age, they will have to pay income tax on the amount withdrawn, as well as a 10% early withdrawal penalty.
Additionally, cashing out a 401k means losing out on the potential for compound interest. Compound interest is the interest earned on both the original investment and the accumulated interest from previous periods. By withdrawing the funds early, the individual will miss out on the potential for their retirement savings to grow over time.
It’s also worth noting that if an individual has taken out a 401k loan, cashing out the account would require the full loan balance to be repaid. Failure to do so would result in the remaining balance being treated as a withdrawal, subject to taxes and penalties.
In short, while it may be tempting to cash out a 401k for immediate financial needs, it’s important to carefully consider the long-term consequences. There may be other options such as taking out a loan against the 401k, or seeking alternative forms of financing for unexpected expenses.
Ultimately, a 401k is meant to be a long-term investment for retirement, and it’s important to approach it as such. If someone is experiencing financial hardship, it may be best to seek the guidance of a financial advisor or counselor before making any drastic decisions.
Can I roll my 457 over to an OR A before retiring from my job?
I don’t recommend 401k plans. I would cash out the 401k plan only if you are going to invest the left over money into a investment like real estate (not the stock market!!). But first things first, educate yourself first before cashing out & blindly purchase a bad investment. Then do the math, make sure the investment will bring you a positive cashflow monthly. You’ll make up the money lost in penalties & then some (tax deductions, depreciation) in a few short years vs doing nothing with the money & deferring the taxes only to pay them when taxes are higher. Plus most people don’t know this but there are fees associated with your 401k. There’s so much people don’t know about 401k plans it’s sad. I don’t recommend ANY paper assets under management. Do what the rich do & become your own banker. I recommend a book called “Becoming Your Own Banker: The Infinite Banking Concept” by R Nelson Nash. It’ll blow your mind.
I did the same thing back then because I didn't have a clue seeing 401k was new to everyone back in the early 90's. So what dept are you with. I am retired Putnam twp michigan (Hell's Fire Department)
That’s your fault that you didn’t use it correctly 401 is a scam point blank find one average worker how has benefited from it in retirement